If you're in your first year, even your second year as a rideshare driver, you may be facing a whole lot of tax issues you never had before, or at least never solved. They don't have to be problems, but there WILL be problems if you don't know what to do, or if you just don't do it. With a small amount of tax knowledge you can more than double your profitability, and save yourself hundreds of dollars, even thousands, in tax interest and penalties. As a young man, ignorant, I made all the mistakes, and I paid the price.
You do not need to be ignorant. You do not need to pay the price.
Before we get into these tax tricks, I'd like to address a subject that is fundamental to your making these savings: Keeping good books and records. You're not a multi-billion or even multi-million dollar corporate empire, so your records do not have to be all that fancy, but you do need to keep some basic records. If you do, it will pay off in real dollars and cents.
Your records concern two things: Tracking car mileage, and tracking expenses that are relevant to your business.
1) Car Mileage. The old-school method is to keep a written log in your car that you update whenever you leave for or arrive at a business-related destination. As a rideshare driver your mileage DOES NOT come from the drive miles associated with your drives. It comes from the total miles driven during a single drive day. For instance, if you drive for four hours, get six drives, and the drive mileage is 48 miles, you do not use 48 miles for your calculation.
Instead you record, in a written log or an app on your phone, the starting odometer reading when you first begin driving with the Lyft or Uber app on - the moment you begin driving, not when you get your first drive. You record the final reading when you turn the app off, not when you finish your last drive. The difference is the number of your your true drive (overall) miles. In my experience, my actual driving miles are maybe 40% of my overall miles. For tax purposes you get to use the larger number, so that is what you should record. I know that apps are popular with a lot people, but I prefer keeping a written log because I can record other information, like gas spending, without being trapped by the app's data structure. I also don't like apps that track my every movement. The IRS likes written logs so much it asks you on the Schedule C if you have one.
2) You may deduct applicable business expenses from your business income; you are only taxed on the difference. Keep receipts for all eligible expenses. For a rideshare driver that might include business cards (advertising), car washes, cleaning supplies, water, or other incidentals. Gas, car payments, insurance, and maintenace do not count because they are covered by the mileage deduction.
But if you have additional small businesses, you may deduct expenses for those businesses as well. The key is: Keep the receipts. These days the best way to store the receipts is as scanned images. If you have a physical receipt, scan it and store it as an Acrobat (PDF) document. If you have an email receipt, print the email to a PDF. If you have a receipt attached to an email, save it; changes are, it too is a PDF. Keep all of your electronic receipts in a single location for each year. For instance, my personal file structure for last year is c:\Data\Finances\Taxes\2018\Receipts. Google Drive and OneDrive are popular locations as well for storing these documents, since you can never lose them that way. Keep separate folders for each year.
If you transfer these two bits of data to a spreadsheet on a regular basis, at the end of the year you'll be way ahead of the tax game. If you don't do that, you'll have that much more work to do at tax time.
How do these actions save you money? We'll save that for another discussion. Just know that if you don't take these two steps, nothing I tell you in the future will be much help.